OREANDA-NEWS. April 29, 2009.  Event: Pharmacy chain 36.6 reported its 1Q09 sales update. The company’s consolidated revenue decreased by 39% in dollar terms or by 14% in ruble terms, with retail sales declining by 14% in ruble terms and Veropharm’s sales increasing by 10% in rubles, reported the press-centre of OTKRITIE FC.

LfL-sales growth in pharmacy stores came in at -8% YoY (in rubles) on the back of a 22% decline in the footfall rate, which could not be offset by a 17% increase in the average ticket (in rubles). The total amount of stores operated by Pharmacy chain as of 1Q09 was 1,084 outlets. During the first three months of 2009, the retailer opened net 7 stores organically and closed 50 stores.

View: We read Pharmacy chain 36.6 sales update as downbeat. We believe the company’s retail sales dramatically decreased in 1Q09 due to the closing of stores throughout 2008 and the discontinuation of supplies by Protek in 4Q08. The share of Protek in 36.6’s total retail sales accounted for c20% (according to Pharmexpert estimates), and it seems Pharmacy chain failed to compensate for these supplies. We also think that Pharmacy chain’s relations with suppliers and distributors remain tense, and there is room for uncertainty about retail sales performance going forward.

Action: In spite of a downbeat 1Q09 sales update we believe the market could shrug off this news. Over the last two weeks, APTK has been seeing huge trading volumes and APTK’s share price has surged by almost 120%. We believe there could be two reasons for this. First, speculations about Pharmacy chain selling a stake in Veropharm or in 36.6 itself.

However, on April 28, 2009, Vedomosti reported that 52% of Veropharm's shares would not be sold in the nearest future, since the retailer had found other sources of financing besides the sale of a stake in Veropharm. Second, some interested investor, which is looking to consolidate a large block of shares, could be buying up stocks. We view APTK solely as a speculative play.